Uganda homophobia could force oil industry development

Foreign aid to Uganda ended abruptly following a measure recently signed into law prohibiting homosexuality. Uganda may have to rely on developing its oil industry to offset the loss of foreign aid.

On February 25, 2014 President of Uganda Yoweri Museveni signed a controversial anti-homosexuality measure into law. The measure increases penalties for those suspected of being gay, with some punishments including life in prison. The original version of the law, introduced in 2009, included the death penalty as a possible measure for those found to be gay. Following outcry from the United Kingdom and various European countries, the law was set aside only to be resurrected and passed this year without the death penalty as a potential punishment.

The law has once again resulted in protests from both the United States and the European Union. President Museveni seemed to have welcomed such protestations, using claims of western interference to appeal to anti-colonial sentiment in the country. Museveni may also be banking on increased political clout, thanks to great amounts of commercially viable oil deposits. Yet, this recent law could affect the future of that very oil and Uganda itself.

In 2006, it was announced that proven deposits of oil were found in the East African country. Since then, considerable additional deposits have been found. Some estimates have posited that 3.5 billion barrels of oil are available, with a conservative estimate of 1 billion being economically viable to extract. Importantly, discoveries are still being made so the numbers are likely to increase.

Uganda could receive as much as $2 billion in revenue upon the start of production. That is more than half the size of the country’s budget and more than all of the considerable donor aid that the country receives. Oil exploration began in the late 1990s, and the 2006 discovery occurred in exploration blocks jointly owned by the Anglo-Canadian Heritage Oil and the Anglo-Irish Tullow Pillow PLC. The discovery may have some important and transformative effects on the governance of Uganda.

President Museveni first came to power in 1986 through a coup d’état and has been in power ever since. As he looks towards the 2016 election cycle, there should be little doubt that the passage of this anti-gay law and the president’s very muscular defense of it should play well to the larger Ugandan electorate.

Meanwhile, various European countries have announced they will be cutting off aid to Uganda. Norway, the Netherlands, and Denmark among others have announced that they will immediately restrict aid to the East African nation. Even larger donors such as the United States and Canada have indicated they may take similar actions, with polls showing the law’s dramatic level of unpopularity within these countries.

Western aid accounts for as much as half of Uganda’s budget and helps to shore up the government’s expenses in health care, defense, education and other sectors. While Museveni may be counting on oil revenues to offset aid losses over this policy, it is questionable whether insisting on this issue is efficient or wise at such a critical stage in Uganda’s development. The passage of the law and continuing fallout and cuts in aid may not only damage Uganda’s brand with already wary investors, but it may also affect production of the large deposits of commercially viable oil.

Oil production in the Albertine Graben region of Uganda has already been delayed over tax disputes, contractual disagreements and infrastructure issues. Coming after several years of reports and investigations into corruption in Uganda’s oil sector, the passage of this law and Museveni’s blatant attempt to maintain power through traditional anti-colonial and populist appeals may have a negative effect on much-needed foreign investment in oil production.

The political calculations behind the law’s passage may be interpreted as a sign of potential political instability. And when coupled with the corruption allegations and production delays, the law’s passage could be viewed as a reason for caution. Additionally, continued fallout from the anti-gay legislation could affect the ongoing bidding process to build an oil refinery, benefiting countries such as China that have close ties to the Ugandan oil sector and have not been vocal regarding the law. Whether Uganda will fall victim to the resource curse which has so long plagued the continent remains to be seen, but investors should view recent developments as more reason for caution.

About Author

Sean Durns worked as a research assistant to a former high ranking Pentagon official and the Director of National Security Strategies at a DC based think tank. His analysis has been referenced by a variety of media outlets including The Wall Street Journal, Roubini's EconoMonitor, OilPrice, and many more. He holds a M.Sc. in History of International Relations from the London School of Economics where he focused on US foreign policy, security studies, and energy security.